Dear Fellow Shareholder,
Since the pandemics onset, we have taken two steps forward and one step back on several occasions. This is another one of those times. Corporate earnings for 2021’s first two quarters exceeded expectations and stock prices followed upward. During the third quarter, however, we saw the economy, earnings, and stock market slow down. It happened suddenly, but it is nothing to be alarmed about from our long-term investment perspective.
A visit to your local grocery store provides a telling picture of what is going on — some shelves are sparsely stocked and more customers are wearing masks.
Earlier this year, with COVID-19 cases on the decline and federal stimulus checks in hand, consumers rushed back into the marketplace — buying homes and cars, taking vacations, and attending all sorts of events. This was great for business. Sales were up, corporate profits jumped, and stock prices rose along with them. Until companies just could not keep up.
The reason is when the economy shut down, so did production lines. Then, when consumer demand exploded, manufacturers could not ramp up fast enough or find the employees they needed. Demand is simply outpacing supply. For example, automakers cannot obtain the semiconductors they need to build cars. Homeowners looking to upgrade appliances often cannot find what they need. As a result, people are suddenly spending less.
At the same time, businesses dealing with staffing shortages are reducing hours, further dampening sales. And now the upswing in COVID-19 cases is sending more people back into the safety of their homes and impacting restaurant seatings, air travel, and other elements of the mobile economy. Combined, these economic disruptions have forced some companies to downgrade their earnings estimates and this has slowed stock market growth.
What the fall has in store for us is impossible to predict — and certainly we are concerned about the resurging health impacts of the virus — but in our view the long-term outlook remains bright. Demand for consumer products is still high and the supply chain kinks should get straightened out. Quality businesses typically adapt, continue to grow, and should be bigger and more profitable five years from now than they are today.
We believe this bodes well for the FAM Funds. Our research team seeks quality companies with solid financial footings that we think are ideally positioned to weather any storm and deliver strong results over time. We focus not on the random, day-to-day, short-term turbulence in the economy or market, but on the businesses behind the stocks.
Have there been some unanticipated changes in recent weeks? Sure. But they do not alter our long-term vision. We believe we will take another two steps forward … And the shelves will once again be completely stocked.
Fenimore Founder and Executive Chairman Tom Putnam built the framework for a long-term succession plan many years ago to ensure continuity of experience and investment philosophy for years to come. I am pleased to announce the latest step in this plan.
Longtime Fenimore Investment Research Analyst Marc Roberts has been named as a Portfolio Manager of the FAM Value Fund. Marc served successfully in the same role for the FAM Small Cap fund from 2012 to 2016 before relocating to Chicago. He returned to us last year and quickly re-established himself as a key member of our research team. Marc joins me and Drew Wilson in managing the fund.
At the same time, Tom has announced that he will transition away from being a portfolio manager on our funds at the end of 2021 to concentrate fully on his Executive Chairman role. He will continue to be a mentor and an active participant in our research process and strategic direction. The rest of our fund management teams, including those of us who have led these teams for several years, will remain in place. Paul Hogan and Will Preston manage the FAM Dividend Focus Fund and Andrew Boord and Kevin Gioia the FAM Small Cap Fund.
We look forward to continuing Tom’s well-established tradition of collaborative, team management of the FAM Funds and to working diligently every day as we seek to grow your wealth over time.
We value the personal connections we have with our shareholders. You can reach us with any questions at 800-932-3271, through the contact us section of our website, or via info@fenimoreasset.com. Our team also welcomes you to meet with us in either our Albany or Cobleskill office or via Zoom.
We hope to hear from you soon. Thank you for your continued confidence in us.
Sincerely,
John D. Fox, CFA
CHIEF EXECUTIVE OFFICER
In this educational video on Roth IRA Conversions, Shaun Fagant, Shareholder Relations, breaks down this strategy that distributes pre-tax dollars (e.g., Traditional IRA, 401(k), 403(b)) into a Roth IRA for the potential for tax-free growth.
Here are some of the topics covered:
Ever since Tom Putnam established Fenimore in 1974, he has maintained the practice of getting out from behind the desk and meeting in-person with management teams, a key tenet of Fenimore’s research process.
Why do we do it? There are a few factors that support Fenimore’s longstanding belief that face-to-face meetings are a best practice including learning the business better, getting a bigger picture view and building relationships.
Today, our entire research team is responsible for conducting in-person meetings annually with our portfolio companies with the purpose of achieving the following:
Fenimore’s trips to AHR Expo, an annual HVAC (heating, ventilation, an air conditioning) industry trade show, provide a great example of the in-person value we seek to create. Over the years, we have made a number of investments in the HVAC industry and this conference provides an efficient way for us to talk with all of our portfolio companies in this industry, as well as their competitors, suppliers, and customers.
At the last expo, we gained a better understanding of how powerful the tailwind of sustainability through reduced energy consumption will be for the industry. We also learned that several companies believed consolidation will continue, particularly as foreign companies try to buy their way into the US market to bypass the tremendous barriers to entry.
While the pandemic has temporarily changed the way we interact with management teams, the industry has done a great job adapting to a virtual world, which has enabled us to continue to have valuable face-to-face engagements with existing and potential investments. Most important, you can be assured that the Fenimore team is eager and planning to get back out on the road and resume in-person meetings as soon as possible.
It is this direct connection, and industry understanding that Fenimore has embraced for nearly 5 decades – a tradition we expect to remain for generations to come.
Fenimore CEO & CIO John Fox discusses where we were a year ago and where we are today. This video clip is from our Fenimore Talks │ Stocks annual event, held in partnership with the University at Albany on March 23, 2021.
FAM Dividend Focus Fund Portfolio Manager William Preston discusses virtual meetings with the leaders of our holdings and their effectiveness. This video is from our Fenimore Talks │ Stocks annual event, held in partnership with the University at Albany on March 23, 2021.
Fenimore’s Kevin Gioia, Portfolio Manager of the FAM Small Cap Fund, shares his views on small-cap stocks. This video clip is from our Fenimore Talks │ Stocks annual event, held in partnership with the University at Albany on March 23, 2021.
Valuation always matters over the long term explains Fenimore’s CEO & CIO John Fox. This excerpt is from our Fenimore Talks │ Stocks annual event, held in partnership with the University at Albany on March 23, 2021.
As we celebrate 25 years of service to our shareholders, we’re pleased to provide an insight into 6 Key Lessons Learned along the way that have helped contribute to the Fund’s long-term success.
Dividend investing has been around for over 100 years, but for the last 25 years Fenimore Asset Management has been implementing its own style of dividend investing through the FAM Dividend Focus Fund by investing in the growth potential of the dividend over the long term versus its current yield.
Much has changed since 1996, when the 10-year Treasury was at 7%1 and money market funds would pay investors 5%.
And even the Fund’s name has changed in that time, but what has not changed is the return potential from investing in dividend-paying mid-cap companies that are on a growth trajectory. The FAM Dividend Focus Fund Co-Managers evaluate every business in order to determine if it is best in class and can grow for years to come. Together they analyze whether the management team is strong and ethical, and why clients want to do business with the company to build the case for growth.
“We kiss a lot of frogs to find the right businesses,” noted William Preston, Co-Manager. “We are looking for that company to be the best holding over the next five to 10-plus years. It’s truly an unrelenting focus on quality and it is one of the things we don’t compromise on.”
But what value do dividends really add? Going back all the way to 1926, dividend income has constituted more than 30% of the monthly total return of the S&P 5002, according to analysts. At Fenimore, the dividend growth focus allows the team to determine not only whether a company is growing, but also creates guard rails around managements’ capital allocation. This trusted Fenimore strategy is dividend focused with a growth filter.
Since inception the FAM Dividend Focus Fund has produced 9.62% annualized. To see the full track record, click here. To learn more about how the FAM Dividend Focus Fund could add value to your portfolios contact us.
1Factset. 10 year was as high as 7%.
2S&P Dow Jones Indices, “DIVIDEND INVESTING AND A LOOK INSIDE THE S&P DOW JONES DIVIDEND INDICES” September 2013